Real estate auctions are gaining in popularity nationwide because they are a quick and efficient way to sell and buy property. According to the National Auctioneers Association, the fastest growing sector of the $257.2 billion auction industry is residential real estate auctions, which jumped 12.5 percent in 2006, generating $16 billion in sales.
Consumers eager to take advantage of the softening real estate market can now find significantly discounted real estate that has been foreclosed by lenders and is being auctioned to the highest bidder. When banks take back foreclosed-upon homes, they sometimes hire auction houses to unload properties. Banks are increasingly selling foreclosed properties at auctions to reduce the growing inventory of REO properties. That scenario has become more common as the number of owners with little or no equity — or even negative equity — has grown, particularly in cases of pricier homes with recent mortgages.
Buying a bank-owned foreclosure at an auction, however, is not without hurdles.
Bidders must be registered prior to the auction with the company conducting the auction. Generally, winning bidders must immediately give the auctioneer a deposit, payable in cash or cashier's check only. Deposits are typically between 5 and 10 percent of the outstanding loan amount and the winning bidder must be able to close in cash within 30 days. The deposit amount varies from state to state and the auction company handling the sale. In fact, some states require winning bidders to pay the full sales amount the same day as the auction.
There are other hurdles too. All properties are sold "as is" and prospective buyers should inspect the homes prior to the auction, so they know what they are bidding on. Moreover, an owner or tenant living in the house may or may not be cooperative about moving out.
Lenders use auction companies because they move inventory quickly. But bank-owned foreclosures aren't the only type of property on the auction block. Sometimes homes are sold at HUD auctions, IRS auctions, "repo" auctions or sheriff's auctions.
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